Apartment rents dive off a cliff

Domain’s December quarter Rental Report has been released, which reveals that apartment (unit) rents have fallen off a cliff across Sydney and Melbourne, driven by collapsing demand from international students and migrants alongside ballooning supply:

In Sydney, apartment rents have plummeted to 2013 levels whereas they have fallen to 2016 levels in Melbourne:

Sydney

Unit rents made the steepest quarterly and annual fall since Domain rental records began in 2004. Unit rents tumbled $25 over the December quarter to $470 a week and since pre-pandemic March $50 has been shaved from asking rents. The cost of renting a unit has now returned to 2013 levels. Unit rents have been hardest hit in the city and east and inner west with rents at an eight-year low, and the lower north shore is the cheapest in nine years.

Annually unit rents have been falling since mid-2018 but this trend has been accelerated by changes as a result of COVID-19. The pandemic-induced collapse to overseas migration and foreign student numbers has reduced rental demand. Units have felt the impact, particularly inner-city apartments, which are home to more rentals and have a greater exposure to demand sourced from overseas migrants. The additional dynamic of heightened apartment construction in recent years has also added to the supply pool…

Melbourne

Of all the capital cities, Melbourne units have recorded the deepest fall in asking rent since pre-pandemic March, down 9.8 per cent. Although the rate of decline eased over the December quarter, three consecutive quarterly falls have resulted in the steepest annual fall on record. Unit rents are now at 2016 levels. For the first time in five years Melbourne is the third most affordable capital city to rent a unit, after Adelaide and Perth. A marked change considering Melbourne was the third most expensive city to rent a unit back in March. Inner-city apartments have been hardest hit with rents at a seven-year low, followed by the inner east and inner south hitting a four-year low.

Melbourne’s elevated vacancy rate is directly associated with secondary lockdowns and state border restrictions. Rental demand has been severely reduced as international border closures curtail overseas migration, as well as a drop in tourism and changes to personal finances. This has had a greater impact on inner city apartments, heightened in areas that have seen extensive high-rise construction in recent years.

SQM Research corroborates this data, showing a large fall in apartment asking rents across Sydney and Melbourne:

This is on the back of elevated vacancies (and a ginormous increase across Melbourne):

As well as swelling apartment rental listings across both markets:

To add insult to injury, Domain reports that short-term rental owners have put their properties on the long-term market, which has worsened the oversupply amid falling demand:

A glut of vacant inner-city apartments once used as short-term accommodation has helped push Melbourne rental prices to a four-year low, with new figures showing more than half the short-stay listings in the CBD were withdrawn in the last year…

A jump in supply coincided with a drop in demand, with available Melbourne CBD vacation rentals dropping from 3401 in December 2019 to just 1541 a year later, according to data from short-term rental analytics firm AirDNA.

As many owners offered empty units for long-term lease, residential rents in the CBD fell by 27.3 per cent in the year to December, to a median $400 per week, on Domain data…

Charter Keck Cramer director Angie Zigomanis said short-term accommodation added back into the rental market exacerbated the downward pressure on rents in inner-city areas.

It’s a similar story in Sydney:

Landlords of short-stay rentals in the heart of Sydney that once fetched hundreds of dollars a night have been forced to return them to the long-term rental market amid the pandemic, with the supply glut slashing prices for locals…

Thousands of available short-stay listings in Greater Sydney were shed over the year to December, according to data from short-term rental analytics firm AirDNA.

More than 20,300 short-term listings were available in December 2019, falling to under 11,400 a year later.

According to SQM managing director Louis Christopher:

“It’s clear Sydney and Melbourne apartment investors were the losers of 2020 with rents and prices falling”.

That’s an understatement. On the other hand, renters in these two cities were big winners.

Unconventional Economist

Comments

  1. When I rented my place in May 2020 the landlord entertained the idea to sell it (after she and I signed the lease lol) and approached me to buy it, at the time I put in a super low off the mark offer and I was happy to consider sub 300K, she came back saying she wanted 390K.

    Shes finally going to put it on the market now with about 4 months left on the lease. With so much apartment stock, surely she will sell for a loss. I feel like being a cheeky bastard and tell her that due to her using my furniture in the photos for marketing material, and that I professionally steam cleaned the carpet off my back when I moved in, she needs to pay up lol.

  2. working class hamMEMBER

    “Asking rent“ has dropped. I wonder what actual new lease agreement rent dropped by?
    With numbers like that 50% off would be the mIn any renter should accept.

  3. reusachtigeMEMBER

    Rubbish! The only place that doesn’t have the same or lower vacancy rate than Dec 2019, ie pre Covid, is Melbourne. Everywhere else is boom times ahead for property investors, some severely booming!!!

  4. Goldstandard1MEMBER

    Property is rising on cheap debt and expectations prices will be higher in the future (even though rents have fallen). One more “didn’t see that coming” and that hopium will dry up. I am actually a little excited to see what the next thing is.
    It will probably be as boring as the vaccine thing will take 3 years to be effective to economy not an overnight thing.

    • roylefamilyMEMBER

      It’s very interesting. What if we get the bat sniffles under control but all our reservoirs of “essential overseas labour” are still riddled with it? We wait with interest!

      • Was discussing this with a doctor friend last night. Very little commentary from the powers that be as to what the end game is here. Most f the vaccines do not prevent infection and we have nothing to support antibody resistance to any covid strain.

        So what’s the outcome, with optimistic vaccination rates you have a population that shouldn’t suffer hospital admission due to covid but all of them can still carry and spread it? At some point you just stop caring and reporting on infection rates?
        Maybe? but what of itnl borders, you could never open them without a vaccination check? AU could find itself in a position of exploding infections and hospitalizations despite most of the local population being vaccinated? then what? you lock down Melbourne again because 3,000 tourists have it and our hospital system needs to cope with it?

        It seems like it should be a simple question for authorities to answer…. ‘what happens after the vaccine rollout?’. The fact we are not talking about it suggests they still have no idea how long this has to roll on for. Years does seem like the appropriate yardstick.

        • RobotSenseiMEMBER

          what happens after the vaccine rollout?
          Nobody has a clue. I’ll speculate that we watch the European and American infection rates after roll-out and adjust our border policy appropriately. If there’s improvement, perhaps consideration is given to limited international travel for a trial period. But I suspect this is 12-18 months away to allow for vaccination to go ahead and appropriate data capture. I don’t think it’s irrational that this discussion hasn’t been had yet – all attention has been (rightly) given to acquisition and roll-out of the vaccination program.

  5. How is it possible that the Sydney vacancy rate is unchanged between December 2019 and December 2020?

    • I think they are hinting that they won’t let them run that hot and contain via Council of financial regulators, but will let them go up a bit to encourage confidence. Happy to release this info now to boost confidence.

  6. The quality of the stock is a key consideration here. Just like when MB failed to recognize that large chunks of the asset owning population where not significantly impacted by COVID job losses, in some cases, they were net beneficiaries. Stocks, classic cars, art, property…. all avoiding (or quickly rebounding from) COVID doomsday and ‘repayment cliffs’, mass foreclosure….. that was always a remote possibility never should have been a base case.

    Low and behold, discretionary spending through the roof, popular local holiday destinations booked out and premium priced and pricing for quality property holding up and in some cases reaching new records.

    Of course Melbourne apartments were hammered? most of the stock was targeted dog boxes, Sydney as well but less so. taking a look at better quality stock, larger, family friendly 3 beders for example in the inner Sydney ring, prices and rents have not fallen at all. You want a decent sized detached house in inner Sydney, you will still be paying up, stock is limited and demand is high. Having spent two weeks back home in QLD looking at housing in a few other nicer Brisbane areas, quality blocks or houses flying off the shelves. Supporting that tail wind is the fact that those coming into Australia are returning expats, they are not coming back to rent a Melbourne sky kennel, they too will likely be in the market for quality housing stock.

    Just like COVID unemployment, its a tail of two halves, some will be feeling pain and others will be making boom time profits.

    • lols – ok.
      Sydney stock on the market is the highest it has been outside of the 2019 crash since 2011 – “flying” – Melbourne is of course far worse – same situation across the country.

      The spruik and propaganda is off the charts and those with vested interests are only too willing to gulp down the jizz and ignore the easily accessible but contrary facts.

      The GFC saw a $50 Billion stimulus – currently we are at $500 Billlion life support with $200 Billion in new mortgages issued by banks masquerading as new home states and new credit – its so absurd.

      Stock on market is the ONLY genuine indicator and it is off the charts in a bad way.

      The entire country is on life support, its about to end, March, and at that point in time you can expect the country to implode.

      Claiming things are going great when foreign markets are issuing global warnings on currency deflation issues due to excessive printing is just so ridiculous and one eyed its not funny.

      Again – the entire mortgage book of just one of the big 4 has been issued in new loans in delinquency buy backs which has been registered as new credit – absolutely absurd.

      System is totally broken.

        • RBA issued a $200 Billion (then extended it) line of credit to the Big 4 banks to be used to deal with mortgage delinquencies – the banks issued new mortgages from this line of credit and bought back those delinquent mortgages – these showed up as “new credit” which macrobusiness has been spruiking as a sign that there is huge market activity – there isn’t as we can see from stock on the market piling up to historically high levels.

          Only thing which offers any counter narrative is new housing construction applications, which in reality is just large land bankers getting in applications for new builds in 2022.

      • lol,

        I was referring to the fact that ‘stock’ is not equal and you therefore cannot infer sweeping forecasts from it….. like the ones made here that were proved wrong….. yet again.

        Onto your other tangent, I never argued that the country, indeed the globe wasn’t on life support? but that is the same argument used to support ‘the great crash’ that should have occurred early this year? It didn’t because that life support was always forthcoming and they aint taking it away anytime soon, including ultra low rates that even this blog acknowledges could go lower! the broken system you refer to has proven time and time again there is no limit to what they will attempt to keep it rolling.

        Bottom line, to date, the forecasts for financial doom remained well off, I’m interested in understanding why (in a world where intervention should have been in the assumptions). I prefer not to make heroic forecasts of impending doom or boom, ALL evidence to date suggests the probability of jizz on your face is simply to high.

        “The entire country is on life support, its about to end, March, and at that point in time you can expect the country to implode.” Hmm.. Just like that repayment cliff and foreclosure cliff?

        Sounds like you’re ready for quite the climax? I’m sure you are positioned accordingly? leveraged shorts, gun’s & gold, just don’t forget those wet wipes Paul.

        • No, stock is PILING up in the areas you specifically mentioned – the only conclusion is that things are in fact NOT selling.

          As for the rest of your post – laughable. Economy has collapsed – that is WHY there is a half trillion in money printed. Thats what a catastrophic failure is. Your point is like saying the car crash victim on life support, with every bone in their body broken, and a 10% chance of recovery is still alive – therefore they are fine and nothing is wrong.

          Its honestly just seriously stupid, no other way to put it.

          • Meh, reading what you want to read mate.

            Again never suggested that everything was just fine and nothing wrong (your strawman not mine.) lets assume there were multiple victims in that crash, according to reports, they should all be in a comma? Yet here we are, 2 of them are up and walking around just fine, buying a new OLED, a second car (used car prices up 25%) after all, household savings for the year are up (less commuting, less socializing, no travel) so what do they do with that?

            https://www.macrobusiness.com.au/2021/01/property-listings-crater/

            You are suggesting stock is low because the stock wont sell, fine? but it also means that for now vendors are also not force sellers (at least NO WHERE near the levels forecast and the same goes for the resumption of bank repayment holidays).

            Like I said, if global catastrophe for asset markets in the short term is such an obvious conclusion (obvious to the point that anyone suggesting moderation in that forecast is just plain stupid), then go ahead and trade it! I look forward to your addition to the 2021 BRW up and coming list, you can then send me the wet wipes? Of course if/when it doesn’t occur, there s always march next year.

          • Meh, reading what you want to read mate.

            Again never suggested that everything was just fine and nothing wrong (your strawman not mine.) Your driver is in a comma but the passenger is up and walking around just fine, buying a new OLED, a second car (used car prices up 25%) after all, household savings for the year are up (less commuting, less socializing, no travel) so what do they do with that?

            As for stock on market at record level & stock pilling up?
            https://www.macrobusiness.com.au/2021/01/property-listings-crater/

            You are suggesting stock is low because the stock wont sell and vendors are pulling/avoiding listings, fine? but it also means that for now vendors are also not forced sellers (at least NO WHERE near the levels forecast and the same goes for the resumption of bank repayment holidays).

            Like I said, if global catastrophe for asset markets in the short term is such an obvious conclusion (obvious to the point that anyone suggesting moderation in that forecast is just plain stupid), then go ahead and trade it! I look forward to your addition to the 2021 BRW up and coming list, you can then send me the wet wipes? Of course if/when it doesn’t occur, there s always march next year.